Rational Economic Man: standing alone, money in his hand, calculator in his head, ego in his heart, and nature at his feet

Marcia Mihotich

In the age of the selfie, one particular self-portrait matters more than the rest: the image of humanity that has been created by economists. Like most selfies, this one distorts reality, but unlike most, it has far-reaching implications because it, quite literally, alters who we become – and not for the better.

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If you don’t yet know him by name, meet rational economic man, or Homo economicus, the protagonist who stands at the heart of mainstream economic theory. Drawn on the page he would have to be depicted standing alone, money in hand, calculator in head, ego in heart, and nature at his feet. He hates work, loves luxury, has insatiable wants, and knows the price of everything.

Of course, this is an absurd description of who we are – and no economist would say they actually believed it – but for over a hundred years this character has represented us and is still central to the economic mindset that is being taught to the next generation of policymakers worldwide. So where did he come from?

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In the 18th century, Adam Smith, drew up a richly nuanced portrait of humankind which recognised our self-interest as well as our "humanity, justice, generosity and public spirit". But such a mix of traits made this economic man unpredictable, so in order to slot him into their models, Smith’s successors decided to pare him down to size. In the process, they turned that nuanced portrait into a caricature and, ultimately, a cartoon.

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And here’s the trouble: what started out as a crude model of man gradually became a model for man, defining a narrow standard of self-interest by which rational humans should behave. Worse, on being told that this is who we are, we actually become more like him.

Research has found that merely studying Homo economicus can alter us. In Israel, third-year economics students rated altruistic traits – such as helpfulness, honesty and loyalty – as being far less important than did their freshman equivalents. After taking a course in game theory (a study of strategy which assumes self-interest in its models), economics students in the US behaved more selfishly and expected others to do so too.

"The pernicious effects of the self-interest theory have been most disturbing," concludes Robert Frank of Cornell University, who has investigated these effects on economics students over many years, "By encouraging us to expect the worst in others, it brings out the worst in us: dreading the role of the chump, we are often loath to heed our nobler instincts".

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It is clearly time to meet ourselves all over again with a new economic self-portrait that is fit for taking on 21st-century challenges, from climate change to widening inequalities

And it’s not only the economics students who need worry: given the predominance of economic language in public life, this portrait influences us all. In a survey conducted amongst diverse US undergraduates, those told they were taking part in a "Consumer Reaction Study" identified more strongly with notions of wealth, status and success than did their fellow students who were merely told instead that it was a "Citizen Reaction Study".

Put bluntly, rational economic man has been making us mean and it doesn’t bode well. There are going to be more than 10 billion of us by 2050: if we head for that future each believing that we are like him – solitary, calculating, competing and insatiable – then we will stand very little chance of thriving together on this fragile planet.

It is clearly time to meet ourselves all over again with a new economic self-portrait that is fit for taking on 21st-century challenges, from climate change to widening inequalities. And this new portrait is already being sketched out, with the help of behavioural psychologists, sociologists, philosophers and political scientists.

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Far from being merely self-interested, we are deeply social, caring for and cooperating with others – and punishing them, even at our own expense, when they act selfishly. Rather than making calculations based on full information, we typically follow the rule of thumb – and it often serves us better, to boot. Our wants are not fixed and insatiable, but are continuously reshaped by what we value – be it security and benevolence or hedonism and success – and each of these values may be activated or suppressed in us many times a day by advertising, by our peers, or by the mere mention of a word (think consumer versus citizen). And lastly, far from being dominant over nature we are deeply dependent upon her, living not on the planet but within Earth’s biosphere.

As this new self-portrait emerges, one surprising trait is worth noting: when we put a monetary value on things that we give a moral value, we can put them in jeopardy. Pay school children to read books and they will, but they may lose the love of reading in the process. Pay farmers to protect the local forest and they will, but their motivation for doing so may switch from respect for the living world to regard for the bottom line. "The market is an instrument, but not an innocent one," warns the Harvard philosopher Michael Sandel, "...sometimes, market values crowd out nonmarket norms worth caring about".

As we start to better understand who we are as a species, and place this 21st-century selfie at the heart of new economic thinking, instead of bringing out the worst in ourselves, we can begin to nurture the best of human nature, to the benefit of all our futures.